Canada dollar gains after largest drop since 2011 as gold rises

The Canadian dollar rose against its U.S. counterpart after yesterday’s largest drop in more than a year as gold pared losses following a 14% two-day plunge that damped demand for commodity-linked currencies.

The loonie, as the currency is nicknamed, fell versus its commodity peers, the Australian and New Zealand dollars, as gold for immediate delivery gained 2.6%. Slower-than-forecast economic data in Canada, China and in the U.S., the nation’s largest trading partner, is projected to lead the Bank of Canada to revise down growth forecasts as it leaves its 1% interest rate in place at its policy meeting tomorrow. Canadian factory sales increased more than forecast in February.

“When you look through what Canada exports and who it exports to, you can come to the conclusion that maybe the disappointment in China probably wasn’t as significant as the market thought it was yesterday,” said Jane Foley, senior currency strategist at Rabobank International in London. “Maybe there is a little bit of a recovery from the sell-off we had earlier in the week.”

The loonie rose 0.3% to C$1.0227 per U.S. dollar at 10:24 a.m. in Toronto. Yesterday it touched C$1.0259, a 1.2% drop and the biggest since Dec. 8, 2011. One loonie buys 97.78 U.S. cents.

Gold Weights

Although the world’s two biggest gold producers by market value are Canadian, gold miners account for only 6.1% of the Standard & Poor’s Toronto Stock Exchange Index. Goldcorp Inc. is the biggest by market value and Barrick Gold Corp. is the second biggest.

Futures on crude oil, the country’s biggest export, fell 1.1% to $87.71, after touching $86.06, the lowest point since November. The Standard & Poor’s 500 Index of U.S. stocks gained 0.7%.

Canada’s benchmark 10-year government bonds fell, with yields rising three basis points or 0.03 percentage point to 1.74%. The 1.5% security maturing in June 2023 lost 31 cents to C$97.77.

The Bank of Canada will announce additional details on April 18 about an April 24 auction of securities maturing in 2015.

A faster-than-forecast pickup in factory sales in February follows weaker-than-projected gross domestic product data in China, an expected drop in retail sales in the U.S., and the biggest monthly job loss in Canada since 2009.

Factory Output

Canadian factory sales advanced in February at the fastest pace since July 2011, with sales rising 2.6% to C$49.6 billion ($48.5 billion), following a revised January decline of 0.6%, Statistics Canada said today in Ottawa. The increase exceeded all 18 economist forecasts in a Bloomberg survey with a median estimate of a 0.6% gain.

“The market is looking for more of a dovish stance from the Bank of Canada, potentially even going to a neutral stance and taking any sort of hiking rhetoric out of the statement,” said Darcy Browne managing director of currencies at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, by phone from Toronto. “When the Canadian dollar strengthens people will sell that and if the U.S. dollar weakens people are looking to buy that.”

Central-bank officials have held the benchmark interest rate at 1% since September 2010 to support the economy.

Canada registered a net outflow of securities in February as foreigners sold a net C$6.31 billion of Canadian securities in February, led by the biggest sale of stocks since October 2007, government figures showed.

The cost of living in the U.S. declined 0.2% in March for the first time in four months after a 0.7% jump in February, the Labor Department said today in Washington. Separate data showed a surprise 7% jump in U.S. new-home construction.

The Canadian dollar has fallen 1.3% this year against nine other developed nation currencies tracked by the Bloomberg Correlation Weighted Index, trailing the Australian dollar’s 1.7% gain and the New Zealand dollar’s 4.8% gain. The U.S. dollar rose 2.1%.